2015 (7) TMI 386 - HC - Central Excise

Reversal of CENVAT Credit - Remission of duty - whether on remission of duty, the assessee is liable to reverse the cenvat credit taken on inputs - held that - once the goods are destroyed or lost due to natural cause, remission of duty is granted on such goods. Since the inputs are considered to be put to intended use in the manufacture of finished products, it is deemed to have been consumed in the process of manufacture and since the goods are lost or destroyed due to unavoidable accident, the claim of reversal of credit cannot be countenanced, more so, when the said provision does not provide for reversal of credit, as has been observed by the Tribunal, which we approve. - Decided against Revenue.

Summary

Issues:
1. Rejection of claim of reversal of CENVAT credit by the Department
2. Entitlement to seek remission of duty without reversal of CENVAT credit

Analysis:
1. The case involved the rejection of the claim of reversal of CENVAT credit by the Department and the entitlement to seek remission of duty without reversing the CENVAT credit. The Tribunal allowed the appeal filed by the assessee based on the decision in the case of Inalsa Ltd. v. CCE, New Delhi, which held that goods destroyed due to natural causes or unavoidable accidents cannot be equated with exemption of goods. The Larger Bench of the Tribunal approved this view and overruled the decision in the case of Mafatlal Industries Ltd. v. CCE, Ahmedabad. The Tribunal held that remission of duty on finished goods destroyed by natural causes does not mandate the reversal of credit taken on inputs used in such goods.

2. The Tribunal's decision was based on the interpretation of Rule 49 of the Central Excise Rules 1944 and Rule 21 of the Central Excise Rules 2002, which provide for remission of duty in cases of goods lost or destroyed by natural causes or unavoidable accidents. The Modvat rules prohibit the credit of duty paid on inputs used in the manufacture of exempted goods charged at a nil rate of duty. The Tribunal held that in cases where goods are lost or destroyed due to natural causes, the inputs can be considered to have been put to intended use for the manufacture of final products, and hence, there is no requirement for the reversal of credit on such inputs.

3. The Court approved the Tribunal's view that once goods are destroyed or lost due to natural causes, remission of duty is granted without the need for the reversal of credit on inputs used in the manufacturing process. The Court emphasized that since the inputs are deemed to have been consumed in the manufacturing process and the goods are lost or destroyed due to unavoidable accidents, the claim of reversal of credit cannot be accepted, especially when the relevant provisions do not mandate such reversal.

In conclusion, the Court ruled in favor of the assessee, dismissing the Civil Miscellaneous Appeal filed by the Department and answering the questions of law in favor of the assessee and against the Revenue.